At the same time, a rather dangerous trend has emerged, when the improvement of financial indicators in some sectors at the expense of high prices can lead to crisis situations when prices will undergo their inevitable negative logical correction.
Climbing in fields and woods
One of the sectors currently facing such a dilemma is forestry and wood processing, which are faced with falling prices in export markets. Furthermore, woodworking is also dependent on rising electricity prices, and therefore may have to coexist with rising production costs and falling prices of manufactured products at the same time. It is true that the industry itself feels that the situation is rather unfortunate, but it is not such that one has to worry about the onset of a crisis. However, one way or another, changes in the economic situation are felt in the functioning of the industry, and its profit in the third quarter of this year compared with the corresponding period last year decreased by 63% to 57.8 million euros, according to data from the Central Statistics Office.
At the same time, the still relatively expensive tree in the forestry and logging sector makes it possible to work with an increase in profit, which in the third quarter of this year reached less than 68.6 million euros, or about 22.5 million more than in the corresponding period last year. However, it is quite safe to predict that profit indicators may decline in the coming days in connection with falling wood prices. Experts admit that a relatively good indicator of the condition of the lumber market is the change in lumber prices on the Chicago Mercantile Exchange, where prices have fallen by about 45% during the year, but compared to March 4 this year , when due to general stress, prices had reached the maximum of the last year, the drop reaches up to 70%. The above indicates that due to war and ignorance, timber prices had reached a very high point, but then fell sharply and may continue to fall, as supply is obviously pushing demand more and more.
It should be noted that woodworking is the largest sub-sector of the Latvian manufacturing industry and the decrease in export opportunities of production and prices is not good news for general economic indicators of Latvia.
Falling prices could also affect a profit-oriented sector like agriculture. The industry, which is statistically categorized as “gathering and ranching, hunting and related support activities,” has seen its profits more than double year-on-year. The profit of companies employed in this sector increased during the year from less than 26.2 to 56.6 million euros. Here again the main reason for the increase in profits is the high prices associated with the activities of investors on world commodity exchanges, where the general stress over product shortages after the Russian invasion of Ukraine and the boom in material commodities caused by the flow of money in the financial markets in the course of overcoming the Covid-19 have contributed to the increase in prices. The expected drop in the prices of energy resources could help companies in the agricultural sector to maintain their profits, however, at the same time, it must be taken into account that the prices of agricultural crops on the stock exchange could also fall.
Industrialists are doing differently
The general boom in price growth and the end of the business cycle hasn’t been so good for the manufacturing sector, where, as already mentioned, the largest sub-sector – woodworking – has seen declining profits. In general, companies in the manufacturing industry earned 55.4 million euros less in the third quarter of this year than in the same period last year. Total profit after tax for the sector in the third quarter of this year was almost 207 million euros. However, the previously impressive decline in overall profits of the wood industry was offset by the fact that Latvian food, several sub-sectors of mechanical engineering, as well as computer, electronic and optical equipment manufacturing fared much better than last year. The profit of the aforementioned food industry (the second sub-sector of the processing industry) more than tripled during the year, reaching 11.15 million euros. On the other hand, when viewed in nominal terms, there is an impressive increase in the production of computer, electronic and optical equipment in the third quarter of this year compared to this period last year, where profit grew from less of 20 million to 44.67 million euros. Similarly, the production of electrical equipment almost tripled to 14.77 million euros.
Always by inertia
Even if the economy began to have quite significant complications, high activity can be noted in the real estate market, which made it possible to significantly improve the profit indicators of companies in the sector. There, profit almost doubled over the course of the year, exceeding 82 million euros. The fact that people are actively buying real estate and renovating it is also evidenced by the profit indicators of various businesses related to the real estate sphere. For example, providers of construction and landscaping services earned more than €2.6 million in the third quarter of this year compared to €1.5 million in the same period last year. Looking at the income indicators of the companies, it is quite evident that in the third quarter of this year the financial indicators suffered from the process of inertia after the recovery of the national economy last year and at the beginning of this year, when the war in Ukraine had not yet started and even after its start economic activity in many sectors has not changed. As you can see from Nee’s industry, the money is being used well despite rising prices. There are strong doubts as to whether this process will continue, as the purchasing power of the population decreases and economic activity decreases. This applies to both the real estate sector and the economy as a whole. This is partly demonstrated, for example, by the very rapid decline in profits in the commerce sector, which fell from 271 million euros in the third quarter of last year to less than 217 million euros in the corresponding period of this year.
